I had predicted a good year for equities in my forecast for 2012(published on 31st dec 2011) with sensex going to the levels of 20000 to 21000 by the end of the year.I also had predicted that some strong businesses(My top 10 stock picks in the same blog) in specific sectors like Banking&Finance, power,infra and energy will do very well in 2012 and ahead . Both my forecasts have proved to be accurate till now ,though the bigger part of the year is still to unfold. 2012 has seen an eventful and dramatic start till now with Market index(sensex) showing a sharp gain of 14 percent in first 6 weeks of the year. While the Market index has gained by 14 percent, my recommended 10 stock picks have gained by 21 percent in the first 6 weeks of the year.This is a handsome gain by any standards and is 1.5 times the gain by Market index.
My forecasts were based on the simple fact that most of the negative news at the domestic and global level were also ready discounted in the Market prices like inflation, interest rates, policy paralysis, fiscal deficit at local level and US economy slow down, Euro recession & Euro sovereign debt crisis at global level. The only factor it had not discounted was a disorderly default by Greece or Italy(Market can never discount such catastrophic events).In fact, Market had typically overreacted on certain issues due to it's inherent shortsightedness and myopic mindset.Indian Market index was quoting at forward PE multiples of 12 to 13 with respect to it's historic average of 16 .Many strong business were being quoted at very attractive prices as they had been hammered down by a brutal market due to macro economic concerns and FII money flocking to safer heavens.It's this overreaction due to it's shortsighted myopic mindset that has been traditionally exploited by legendary value investors like Warren Buffet, Benjamin Graham, Philip Fisher, John Templeton to create their huge wealth.
The fact that my recommended portfolio of 10 stocks have gained 1.5 times the market index is not to claim any win as the year has just started. But this definitely reinforces that we don't have to invest in high risk and high beta mid cap and low cap stocks to make decent gains and beat the Market.You can do so by investing in safe and strong blue chip businesses/stocks. The market and broker driven myth of "high risk and high gains" is a facade which has been created to lure retail investors like us to bet for risky stocks and lose our entire money.This myth has been broken time and again by legendary value investors I have referred earlier too. There is no quick way of making millions overnight in stock Market but many quick ways of losing your entire money if you don't play it safe and long term.
Let's talk about how remaining part of 2012 is going to pan out. Here is my 2 cents ,though it's always risky to predict Market movements in short term.The rally till now has been driven primarily by 2 factors - global liquidity and hope for better local action at fiscal, monetary and policy level. As we speak ,global markets have been swamped by a big wave of liquidity driven by ECB, Bank of England and Fed pumping billions of dollars in last few months.ECB has pumped about 490 billion euros in recent weeks by extending short term loans to euro banks.Its planning to inject a trillion dollars more in near future. Some of this global money has come to the Indian markets through FII money(4 billion dollars in 6 weeks).There is also some hope that we will see some action at govt policy and interest rates. These factors have led to this sharp rally.
Is this rally sustainable? The answer is both yes and no. It depends on how certain factors play out. These factors are mainly on what and how govt does on fiscal deficit front and policy/reforms front.It also depends upon what RBI does on the interest rate front.It also depends upon how the congress does in the recent state elections as good performance will strengthen Govt hands for doing reforms.Hence the govt and RBI have their tasks cut out for them in 2012 and ahead. They can't take robust economy growth for granted as it has already come down to 6.9 percent. However, am positive and hopeful after seeing recent trends on inflation reduction, monetary actions by RBI on liquidity front and recent Govt urgency on power sector recovery.If these recent trends continue to exist in the balance part of the year, we should see a good and positive 2012.
I am signing off with this positive note. Happy and safe investing.
Cheers
Amardeep
My forecasts were based on the simple fact that most of the negative news at the domestic and global level were also ready discounted in the Market prices like inflation, interest rates, policy paralysis, fiscal deficit at local level and US economy slow down, Euro recession & Euro sovereign debt crisis at global level. The only factor it had not discounted was a disorderly default by Greece or Italy(Market can never discount such catastrophic events).In fact, Market had typically overreacted on certain issues due to it's inherent shortsightedness and myopic mindset.Indian Market index was quoting at forward PE multiples of 12 to 13 with respect to it's historic average of 16 .Many strong business were being quoted at very attractive prices as they had been hammered down by a brutal market due to macro economic concerns and FII money flocking to safer heavens.It's this overreaction due to it's shortsighted myopic mindset that has been traditionally exploited by legendary value investors like Warren Buffet, Benjamin Graham, Philip Fisher, John Templeton to create their huge wealth.
The fact that my recommended portfolio of 10 stocks have gained 1.5 times the market index is not to claim any win as the year has just started. But this definitely reinforces that we don't have to invest in high risk and high beta mid cap and low cap stocks to make decent gains and beat the Market.You can do so by investing in safe and strong blue chip businesses/stocks. The market and broker driven myth of "high risk and high gains" is a facade which has been created to lure retail investors like us to bet for risky stocks and lose our entire money.This myth has been broken time and again by legendary value investors I have referred earlier too. There is no quick way of making millions overnight in stock Market but many quick ways of losing your entire money if you don't play it safe and long term.
Let's talk about how remaining part of 2012 is going to pan out. Here is my 2 cents ,though it's always risky to predict Market movements in short term.The rally till now has been driven primarily by 2 factors - global liquidity and hope for better local action at fiscal, monetary and policy level. As we speak ,global markets have been swamped by a big wave of liquidity driven by ECB, Bank of England and Fed pumping billions of dollars in last few months.ECB has pumped about 490 billion euros in recent weeks by extending short term loans to euro banks.Its planning to inject a trillion dollars more in near future. Some of this global money has come to the Indian markets through FII money(4 billion dollars in 6 weeks).There is also some hope that we will see some action at govt policy and interest rates. These factors have led to this sharp rally.
Is this rally sustainable? The answer is both yes and no. It depends on how certain factors play out. These factors are mainly on what and how govt does on fiscal deficit front and policy/reforms front.It also depends upon what RBI does on the interest rate front.It also depends upon how the congress does in the recent state elections as good performance will strengthen Govt hands for doing reforms.Hence the govt and RBI have their tasks cut out for them in 2012 and ahead. They can't take robust economy growth for granted as it has already come down to 6.9 percent. However, am positive and hopeful after seeing recent trends on inflation reduction, monetary actions by RBI on liquidity front and recent Govt urgency on power sector recovery.If these recent trends continue to exist in the balance part of the year, we should see a good and positive 2012.
I am signing off with this positive note. Happy and safe investing.
Cheers
Amardeep
